Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Clarifying Asian Gold Strategy

Commodities / Gold and Silver 2014 Jun 06, 2014 - 03:08 PM GMT

By: Alasdair_Macleod

Commodities

The Russians came up with an extraordinary statement recently, central to why Russia and China are buying gold, the importance of which was missed by the media. President Putin said that “Russia and China need to secure their gold and foreign reserves.” He may have been overstepping the mark in making comments about China’s monetary policy, but he was unlikely to have done so without good reason. Furthermore it is impossible to secure foreign currency reserves, because they are at all times under the control of the issuing central banks. So what Putin was actually implying was that China and Russia need to secure their gold.


For those of us that follow these issues closely the emphasis on gold comes as no surprise. The reason this particular penny has not dropped in western markets is we do not think like they do. They emerged from failed communism based on Marxian creed. Keynesian and monetarist theories developed while most of Asia was in economic isolation, and is based less on Marx and more on Christianity. This means the Russians and Chinese have not automatically adopted western economic theory in the wake of communism’s collapse: parts of it, yes, wholesale no.

For this reason it is far too simplistic for western commentators to analyse Russia and China in western terms. Both nations from the top down, in common with the whole Asian population, have no illusions about national currencies which always devalue over time, compared with gold which for them will always be the most secure store of value. And unlike western governments the Chinese and Russian governments regard themselves as being business-like in their affairs and so care very much about the quality of payment they receive for their nations’ exports.

This is why it is likely gold will play a major role in cross-border trade in Asia. It is also worth noting that the Chairman of the State Bank of Russia is Putin’s personal appointee, a woman who previously had been his own economic adviser. She would not have got this position by parroting anti-gold Keynesian and monetarist theory. All the indications are that Elvira Nabiullina is at one with Putin and that she, like him, is a commercial and economic realist. She is also one of very few central bankers who refuses to rescue insolvent banks.  

The State Bank of Russia under her chairmanship is also accumulating gold, allocating what a western central bank would regard as precious foreign reserves that should be used to protect the currency in troubled times. So Russia’s view on gold is in line with China’s, giving force and validity to Putin’s statement.

China’s long-term plans
I have long argued that the Chinese government is working to a strategic plan, which is only partly disclosed through formal five and ten year targets. Having developed her economy on the back of rapid industrialisation China is now switching her attention to her own back yard, which ironically could be described as the maximum boundaries of Genghis Khan’s empire in the thirteenth century, from the Bering Strait to the gates of Jerusalem. She will continue to trade with Europe and America and to extract minerals from Africa and Australia, but there is no doubt her commercial focus is now on Asia. And when it comes to cross-border trade settlement negotiated at inter-governmental level, we can assume western currencies will be excluded where possible. The choice will be for the balance of trade to be settled in a mutually acceptable Asian currency or gold.

China and Russia have been planning towards this outcome for a considerable time through the establishment of the Shanghai Cooperation Organisation, and this is the backdrop to mutual trade settlement policies. Between its members, associates and future members the SCO covers almost all Asia, with the exception of the Sinophile nations of South-East Asia and the Arab states. These regional and cultural blocs are bound to be subsumed into the SCO as the west’s economic and political power declines. It is a total market of over four billion people, four times that of a declining west.  

Genghis Khan’s old stamping ground is being moulded into an economic bloc that will become larger than the North American Free Trade Agreement and the EU together, and potentially more cohesive. It does not have the heavy baggage of the welfare state and its citizens are savers. The confidence China feels in this strategy is reflected in territorial disputes with her non-SCO neighbours. The sub-text is she is telling Vietnam, the Philippines and Indonesia to ditch the foreign influence of America and join the SCO.

Already governments all over Asia are beginning to recognise this pull towards a combined future. As soon as we leave Afghanistan she is likely to be fast-tracked into the SCO. Turkey is turning her back on joining the EU and is moving towards SCO membership. And coincidentally financial markets from Moscow to Dubai and perhaps even Bangkok are all gearing up to be gold-dealing centres.

The signs are as clear as daylight. With a financial system that has the structural stability of a house of cards and the prospect of eventual bankruptcy from welfare commitments, trade with the US and EU is not the future priority for China and Russia. And without the west’s Keynesian and monetary baggage to carry, they have retained in large measure an understanding of the importance of gold as sound money.  

This is why so much of the world’s gold has ended up in Asia, including the Middle East. Gold is destined to be an integral part of Asia’s financial system, leaving the west short and out in the cold. And we know from the tonnage flowing to Asia that much of this gold has come from western central bank vaults.

It amounts to an Asian gold strategy that excludes the west, and by supressing the gold price through sales and leasing of monetary gold western central banks have unwittingly enabled China’s carefully thought-out plans. How and when will western central banks break the news to us all, that the bulk of the gold reserves entrusted to them are now in Asian hands, and they have been secretly complicit since the 1970s in setting up a whole continent with what probably amounts to the largest wealth transfer in history?  

Alasdair Macleod

Head of research, GoldMoney

Alasdair.Macleod@GoldMoney.com

Alasdair Macleod runs FinanceAndEconomics.org, a website dedicated to sound money and demystifying finance and economics. Alasdair has a background as a stockbroker, banker and economist. He is also a contributor to GoldMoney - The best way to buy gold online.

© 2014 Copyright Alasdair Macleod - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Alasdair Macleod Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in